Pigment producers are, with mixed results, pressing for higher prices in Europe in the wake of increases in their raw material costs, most of which stem from the jump in crude oil prices and the Chinese economic boom.
Even some of the large pigment producers, particularly those making organic pigments, are complaining that they cannot gain the price increases they want and are having to tolerate slimmer margins.
In the longer term, however, the outlook for ink manufacturers is a steady upward trend in pigment prices as their producers continue to try to regain lost ground following the steep rise in their raw material costs. Also with some pigments, particularly the commodity ones, the supply/demand balance looks to be working in favor of the pigment producers, at least for the next few years.
The big hope for ink manufacturers is that competition from low-cost imports, especially from Asia, will make it less easy for European pigment suppliers to push for higher prices over a lengthy period.
On the other hand, imports may be squeezed by plans by the European Union to introduce legislation which could bar from the EU market pigments and other chemicals which have not undergone safety tests.
TiO2 and Carbon Black
More immediately, the future trends in supplies are being exemplified by the two major bulk pigments, titanium dioxide (TiO2) and carbon black. With both, supplies in the European market could become tighter because of shortages of capacity.
The European prices of TiO2 actually declined slightly in 2004 on an annual basis, despite the big jump in oil prices which put up energy costs. In addition, strong demand from China for minerals was jacking up the costs of TiO2 raw materials.
During 2004, TiO2 producers closed down some outdated capacity in Europe. By the end of the year, their customers were operating on low inventories as demand began to outstrip supply.
As a result, TiO2 producers have been able to achieve price increases of 10 percent to 15 percent during the last six months.
Benchmark European TiO2 prices are now approximately €2,200 to €2,300 per metric ton, nearly the same level in numerical terms as the prices in U.S. dollars. But since the euro has been worth around $1.30, European prices would appear to have been as much as 30 percent higher than in the dollar-based areas of the Americas and Asia.
TiO2 producers argue that they need higher prices in Europe. Production costs are more expensive because the European TiO2 sector has a disproportionate amount of plants using the old and costly sulphate route, rather than the more cost-effective chloride technology.
The producers say that they require a steady rise in prices to justify putting money into new, more modern plants in Europe. The last greenfield plant in the region was built in the early 1990s. With capacity cutbacks, the supply/demand balance is getting so tight that plant utilization rates will soon be touching 100 percent.
"The latest price TiO2 price increases in Europe are close to reinvestment rates which is equivalent to the construction costs of a new plants of around $3,000 per ton," said Reg Adams of Artikol, a London-based consultancy in TiO2. "Producers will be pushing for more price rises so that they can be sure of keeping prices at reinvestment levels for a while."
There have also been cutbacks in production capacity in Western Europe for carbon black, although these have not directly affected so much the manufacture of the higher grade black pigments required for printing inks.
Also, there is greater pressure from imports in supplies of carbon black to Western European ink producers. These are coming in from Eastern Europe, the Middle East and Asia.
The biggest competition from imports is in the organic pigments segment, which for pigment makers is usually the category offering the highest margins. But these have been gradually eroded by a continued inflow of exports from Asia of low-cost pigments, whose producers have over the past year had the extra attraction of the high value of the euro on foreign exchange markets.
"The European printing inks market is seeing increasing reliance on imported Asian (organic) pigments," said Chris Weighill, vice president and general manager, merchant ink international, Sun Chemical Performance Pigments.
"The influx of these materials into the European market is fueled primarily by the huge pigment overcapacity in China and in part by the strong euro as Asian companies selling in U.S. dollars have capitalized on the favorable exchange rate," he said.
As European ink producers try to boost their own margins by reducing input costs, purchasing of inexpensive pigments from Asia has a growing appeal. Sun Chemical Performance Pigments cites the case of one medium-sized ink producer in Europe which five years ago bought 20 percent of its pigment needs from Asia and the remainder from European producers. Now it is purchasing 80 percent from Asia and the rest from Europe.
Sun Chemical's pigments business has been able to remain competitive in Europe by partnering with the family of pigment companies in Asia of its Japanese parent Dainippon Ink and Chemicals (DIC).
Most other leading pigment producers in Europe, such as Clariant, Ciba Specialty Chemicals and Heubach are now making a relatively high proportion of their printing ink pigments in Asia, mainly in China and India.
As a result of XSYS, the recent merger of ANI Printing Inks and BASF Printing Systems, following the takeover of both operations by CVC Capital Partners, the former ANI operations are being supplied by BASF Colorants & Chemicals Co. Ltd, Shanghai, China. The Shanghai operation, which was also part of the acquisition, has been BASF's main global producer of printing ink pigments.
The margins of organic pigment producers in Europe have also been impacted by rising raw material and input costs.
"(Organic) pigment producers have not had much success in passing on price increases in the European market, mainly due to the strong euro," said Mr. Weighill. "With yellows, blues and azo reds, companies have been willing to accept limited U.S. dollar increases because the net effect is negated by the high euro. This inflation has actually decreased the effective price of some pigments in the European market and resulted in price erosion on certain pigment types."
A shift to higher value pigments in some printing sectors has tended to benefit European pigment makers, because generally Asian producers are active in the lower end of the market. There is strengthening demand for higher grade pigments in the packaging sector. The growth in large-format digital printing is bolstering sales of pigments for ink jet inks because dyes in digital inks do have adequate light stability.
There is also a continued rise in European demand for metallic effect pigments, particularly in the packaging sector. These are usually made in Europe, although an increasing proportion are being manufactured in Asia.
To reinforce its presence in effect pigments, Ciba acquired the Metasheen line of high-reflectance aluminum pigments from Wolstenholme International in March. Ciba also announced it was setting up a joint venture in pearlescent pigments with Zhejiang Ruicheng Effect Pigment Co. of China.
Looming over the horizon, however, is the threat of rising costs and shortages of some pigments over a lengthy period as a result of the European Union's proposed REACH plan for the registration, evaluation and authorization of chemicals.
The legislation setting up REACH, which will cover an estimated 30,000 chemicals with an annual output of over one metric ton, is currently being debated by the European Parliament and the Council of Ministers, which represents the governments of the EU's 25 member states.
A recent survey by the management consultancy KPMG, one of the most detailed on the effects of REACH on industrial costs and competitiveness, found that pigments were among the chemicals most likely to be heavily impacted.
The costs of registering chemicals under REACH could be as high as 20 percent of a product's annual sales, according to the KPMG survey. Their registration under REACH could significantly raise the total costs of inks. But the biggest impact could be the necessity for ink makers to reformulate their products, due to higher costs or even because of the withdrawal of pigments because of the expense of registration.
KPMG said that there could be circumstances in which producers of inks and varnishes may not even be able to reformulate following the withdrawal of certain pigments and additives. "Products would become temporarily unavailable," the consultancy said. "The participants (in the survey) expected that this would have severe negative effects on the (packaging) industry."
After the publication of the report on the KPMG's survey, the European Printing Inks Association (EuPIA) said that "the loss of only a small percentage of raw materials would affect a large part of the product portfolio and result in large-scale reformulation." It pointed out that the reformulation costs would be higher than the direct costs of registration.
Sun Chemical reported that already there is a rise in demand for pigments free of polychlorinated biphenyls (PCB) and dioxins in anticipation of the requirements of REACH. European ink producers are having to think well ahead at the moment.